Commercial Bonds

Commercial bonds are used to make sure practitioners and/or business owners uphold federal and local laws that protect consumers from physical and financial harm. Unlike the other main type of surety bond – contract bonds —commercial bonds do not have contracting guarantees associated. In this sense, commercial bonds may also be referred to as “non-contract” surety bonds. Some examples of commercial bonds include:

License and permit bonds

Public official bonds

Probate and other court bonds

Common definitions associated with commercial bonds

Surety bond

A surety bond consists of agreements between three parties:

Issuer of the bond (first party- surety)

Party the issuer represents (second party- principal)

Party in which the agreement terms are being performed for (third party- obligee)

Surety

The surety is the entity who will be insuring the principal of the obligations referenced in the bond.

Obligee

As mentioned above, the obligee is the company, person or government agency that is requiring the bond. They are the party of a surety bond to whom the principal is guaranteeing they will fulfill their obligations.

Principal

The principal is the person or company that applies for a bond and purchases it.

Indemnity

Indemnity is the compensation for a loss or a restoration to the approximate financial condition occupied before the loss occurred.

What does it mean to be licensed and bonded?

Certain professions will require licensure to indicate that they are competent enough and permitted to conduct business in a municipality, county or state in which the license is issued. Many third parties or obligees will require that these companies are also bonded to ensure that the work can be completed as stated and to protect themselves in the event that it is not. When a company is bonded, it means that a surety company has set aside money that is controlled by the state and not the company to pay in the event that the client files a claim against the company.

How do I know if my business needs a bond?

Many companies and government agencies will require that any company that they do business with is bonded before they are eligible to perform work or legally operate. Your company may not be required to conduct business under a commercial surety bond however they are used to protect those you are doing business with and not you (the principal).